Software giant Microsoft has dropped its three-month-old bid to buy internet firm Yahoo because the two sides cannot agree on an acceptable sale price.

Microsoft chief executive Steve Ballmer formally withdrew the offer in a letter to Yahoo chief executive Jerry Yang. Mr. Ballmer said Microsoft had raised its original offer from $44.6bn to $47.5bn – $33 per share.

But he added that Yahoo had insisted on at least $53bn or $37 a share – more than Microsoft was prepared to pay. The software giant had wanted to do a deal to be able to compete with Google, which dominates the lucrative market for internet advertising.